We are pleased to report that Creative Office Properties has completed its renovation of LC3, has stabilized the project and has refinanced its construction loan with a new 10 year loan. We will begin distributions December 15, 2014, as soon as the free rent periods for the new leases have burnt off. If you have not had a chance to visit the property, below are photos of the renovation and some of the tenant suites. We hope you are as pleased with your investment as we are with the final product.
Below please find a link to a current rent roll for LC3. You will see that we are 96% leased, with just one 2,546 sq. ft. suite vacant. We have two interested tenant prospects, and expect to have that suite leased by November 1st. The building is 78% leased to new tenants who have embraced our creative office concept. The remaining four tenants are very stable and we expect them to renew when their leases expire 14-32 months from now. If not, we will remodel their suites into creative office space and lease it at a higher rate on a modified gross basis. We have a terrific group of tenants, and are very pleased with the diversified mix of businesses. The two things they all have in common is that they are forward-thinking and quite successful.
We refinanced the property with a CMBS loan with a company affiliated with Cantor Fitzgerald. It is a 10 year loan, 4.541% annual interest rate and a 30 year amortization. It is interest-only for the first five years, which will enable us to accumulate additional cash reserves for working capital as well as for funds to release the balance of the building as creative office space.
Also below please find a detailed Projected Cash Flow statement for the balance of 2014 and all of 2015. As you may recall, we agreed to start accumulating the Investors’ 8.5% preferred return as of 1/1/14. We will begin distributions in December, at which time the Investors’ initial $3,650,000 contribution will be $3,934,396. We expect to distribute a total of $42,854 per month, $25,854 of which is the 8.5% preferred return and $17,000 of which is repayment of the cumulated amount. The cumulated amount will be repaid by the end of May, 2016, at which time the Investors will receive their normalized distribution: an 8.5% preferred return on their initial investment, plus 50% of the remaining cash flow after the 10% contribution to the charitable organization. We will start the donations to the local charity only after the Investors have received their cumulated preferred return, and expect the annual donation to be approximately $18,000. As we disclosed in our original Offering Memorandum, we consider this an important part of our business plan, to retain and attract tenants to the building and also to give back to the local community.
To summarize, each investor will receive a 14.1% annualized cash-on-cash return on their investment starting in mid-December 2014 through May, 2016. In June, 2016, it is expected that the annual distribution will be approximately a 10.7% annual cash-on-cash return (below is also a projected 2016 cash flow that details this amount).
We project that the Investors’ equity contribution has appreciated approximately 32.3% as outlined in the Current Valuation, using a 7% cap on the Net Operating Income as of January 2015. At $17.5 million, this valuation is slightly higher than the appraised value of $16.85 million used by Cantor. Using the more conservative appraised valuation, we have a loan to value of 66% (we estimate it is closer to 64%). We also have a strong debt service coverage ratio of 1.93 times.
We have recently modified our system such that we do all of our investor distributions via direct deposit into your bank account. Because we set a monthly distribution at the beginning of each year, you should expect exactly the same amount to be deposited by the 19th of each month. Our new Asset Manager, Nyla Sheikh, soon will send you a form to complete so that we can do these direct deposits.
If you have any questions concerning your investment, please feel free to contact either Nyla or me. Nyla can be reached at Steaven Jones Development Company: 310-826-3600 x10 or NSheikh@SJDCInc.com.
LC3 Projected Cash Flow 10 1 14
LC3 Projected 2016 Cash Flow 10 1 14
